The most popular currency pair rebounds sharply as sentiment improves
EURUSD fell sharply on Friday to its lowest level since early January, however sentiment improved after the weekend. EUR strengthened on Monday partially thanks to optimistic news regarding Northern Ireland protocol. UK's Prime Minister Sunak said that both sides made a significant breakthrough. Original protocol has been altered and new Windsor Framework has been introduced. Suunak reassured that the UK and EU are allies, friends, trading partners.
The most popular currency pair managed to return above crucial resistance at 1.06 amid increasing bets the ECB will continue to raise interest rates beyond 2023. The peak rate is now seen at 3.9% in February 2024, compared to 3.5% in July 2023, projected a few weeks ago. ECB President Lagarde has recently told India's Economic Times that "there is every reason to believe that we will do another 50 basis points in March" and the central bank "will do more hikes if necessary to return inflation to our target of 2% in a timely manner"
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Create account Try a demo Download mobile app Download mobile appNow investors are bracing themselves for fresh ISM figures from US and CPI data from major European economies, which will be released throughout the week. New figures may provide more hints regarding future rate path in the US and Europe.
At the same time risk-on sentiment weighs on the US dollar, which is the worst performing G10 currency despite hawkish remarks from Morgan Stanley. Major US bank now expect the Fed to deliver the first interest rate cut in March 2024 vs previous forecast of December 2023. Bank's analysts expect the Fed to lower interest rates at a slower pace of 25 bp each quarter, and sees the Fed fund rate at 4.25% by end of 2024.
From a technical point of view, the pair bounced off recent lows at 1.0530 during the Asian session and the upward move accelerated sharply in the afternoon. Pair broke above 38.2% Fibonacci retracement of the downward wave launched in May 2021, nevertheless as long as its sits below the major resistance zone between 1.0660 -1.0670, the main sentiment remains bearish.
EURUSD, D1 interval. Source: xStation5
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